BILL ANALYSIS
S.B. 1544
By: Henderson (Smithee)
05-10-95
Committee Report (Amended)
BACKGROUND
Article 3.33, Insurance Code, regulates the types and amounts
of authorized investments for life, health, and accident insurance
companies. Current law prohibits these insurance companies from
investment pools and other investment opportunities.
PURPOSE
S.B. 1544 sets forth provisions relating to assets acquired
pursuant to a lawful agreement of bulk reinsurance, merger, or
consolidation, and to the qualification of investments, for capital
stock domestic life, health and accident insurance companies.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not
expressly grant any additional rulemaking authority to a state
officer, department, agency or institution.
SECTION BY SECTION ANALYSIS
SECTION 1.
Amends Section 3(b), Article 3.33, Insurance Code, to delete the
provision requiring investment records to contain certain
references.
SECTION 2.
Amends Sections 4(g), (h), (j), (k), (m), (n), (q), (t), (u), and
(v) Article 3.33, Insurance Code, as follows:
(g) Short-Term Investment Pools. Subjects short-term
investment pools to ownership interest in pools that invest
only in obligations that an insurer may acquire under this Act
and that meet certain requirements. Authorizes the pool to
engage in securities lending, repurchase, and reverse
repurchase transactions in an amount up to 40 percent of pool
assets. Prohibits the pool from incurring indebtedness for
any other purpose or investment in any security issued,
assumed, guaranteed, or insured by the insurer or any of its
affiliates. Subjects ownership interests in pools to certain
limits. Requires the pool assets to be held in a separate
custodian account by a custodian bank for the benefit of each
pool participant as its interest may appear. Requires the
custody agreement and the pool agreement to be in writing, and
requires the pool agreement to provide certain information.
Prohibits investment in pools from being deemed to be an
affiliate transaction under Article 21.49-1.
(h) Equity Interests. Equity interests include, among others,
equity interests in any business that is a limited liability
partnership, limited liability company, limited partnership,
joint-stock company, joint venture or trust that is organized
under the laws of the United States, another state, Canada, or
any state, district, province, or territory of Canada,
provided, among other conditions, the business entity shall be
subject to an
annual audit or another method of valuation acceptable to the
commissioner of insurance.
(j) Prohibits Subsection (j) of this section, concerning
collateral loans, from applying to obligations qualified under
Subsection (c) of this section.
(k) Requires, with respect to the authorization of certain
real estate loans for capital stock domestic life, health, and
accident insurance companies, that portion of the loan which
does not exceed 90 percent of the value of such real property
or leasehold estate of the loan to be deemed a permitted
investment under Subsection (l), and the remainder of the loan
in excess of 90 percent to be deemed to be made under
Subsection (o).
(m) Authorizes capital stock domestic life, health, and
accident insurance companies, either directly or through a
business entity, to secure, hold, retain, and convey certain
oil, gas, and mineral production payments and royalties.
(n) Prohibits for capital stock domestic life, health, and
accident insurance companies investments in foreign countries
other than Canada or in commonwealths, territories, or
possessions of the United States if such investments exceed
the sum of 20 percent, rather than five percent, of the
insurer's assets.
(q) Prohibits the quantitative limits imposed in Subsection
(c)(1), rather than (c)(2), from applying to certain insurers.
(t) Requires the percentage authorizations and limitations
under this section to apply only at the time of the original
investment, except as provided in Subsection (v). Requires
any investment once qualified under any subsection of this
section to remain qualified, notwithstanding any reference,
restructure, or modification of such investment.
(u) Distributions, Reinsurance and Merger. Prohibits any
provisions of this article from prohibiting the acquisition by
an insurer of additional obligations, securities, or other
assets if received as a dividend or as a distribution of
assets. Provides that this article does not apply to
securities, obligations, or other assets accepted incident to
the adjustment or realization of any kind of investment under
certain conditions, nor to assets acquired pursuant to a
lawful agreement of bulk reinsurance, merger, or
consolidation. Provides that no obligation, security, or
other asset acquired as permitted by this subsection need be
qualified under any other subsection of this article.
(v) Qualification of Investments. Prohibits the qualification
or disqualification of an investment under one subsection of
this section from preventing its qualification in whole or in
part under another subsection. Authorizes an investment
authorized by more than one subsection to be held under
whichever authorizing subsection the insurer elects. Requires
an investment or investment practice qualified under any
subsection at the time it was acquired or entered into by the
company to continue to be qualified under that subsection.
Authorizes the transferral of an investment to other
subsections under which the investment qualifies.
SECTION 3. Amends Sections 7(a) and (d), Article 21.28-D, Insurance
Code, as follows:
(a) Requires the commissioner of insurance, rather than the
State Board of Insurance, to appoint a board of directors of
the Life, Accident, Health and Hospital Service Insurance
Guaranty Association (association) chosen from among the 50,
rather than 10, member companies having the largest total
direct premium income. Prohibits a public representative from
being an officer, director, or employee of certain entities
regulated by the Texas Department of Insurance, rather than
the State Board of Insurance.
(d) Deletes members, companies, or other entities represented
by a director of the association from the prohibition against
receiving any money or valuable thing through any substantial
interest in any other corporation, firm, or business unit for
negotiating, procuring, participating, recommending, or aiding
in a contribution made by the association or the supervisor,
conservator, or receiver on behalf of an impaired insurer.
Prohibits the director of the association from having a
pecuniary interest, among others, in a contribution.
SECTION 4.
Repealer: Section 5, Article 21.39-B, Insurance Code (Restriction
on Transactions with Funds and Assets).
SECTION 5. Effective date: September 1, 1995.
SECTION 6. Emergency clause.
EXPLANATION OF AMENDMENTS
The Committee amendment to S.B. 1544 requires ownership
interest in short-term investment pools to meet either of the
following limits: The maximum aggregate investment in all pools
would be 10% of the insurer's admitted assets, unless the insurer
had assets in excess of $1 billion. In addition, the investment
would have to be made pursuant to a written agreement which would
contain certain required safety provisions. This would permit more
efficient and effective management of short-term low-risk
investments for all insurers, and could also be used to increase
the investment income on cash collateral held for securities
lending.
SUMMARY OF COMMITTEE ACTION
In accordance with House rules, S.B. 1544 was heard in a
public hearing on May 10, 1995. The Chair (Duncan) laid out S.B.
1544 and an amendment by Representative Smithee to S.B. 1544. The
Chair recognized Representative Smithee to explain the bill and
amendment. The Chair recognized the following person to testify in
support of S.B. 1544: Will D. Davis, Texas Legal Reserve Officials
Association.
The Chair recognized Representative Smithee who moved the
Committee adopt the amendment to S.B. 1544. The Chair heard no
objections and the amendment was adopted. The Chair recognized
Representative G. Lewis who moved the Committee report S.B. 1544 as
amended to the full House with the recommendation that it do pass
and be printed. The motion prevailed by the following vote: AYES:
(8); NAYES: (0); PNV: (0); ABSENT: (1).